Senator SHERRY (12:33 PM) —Taxation Laws Amendment Bill (No. 3) 1998 that the Senate is considering deals with a range of very important provisions. The issue that I intend to make a contribution on today relates to the so-called introduction of choice of superannuation products. There are a range of other matters relating, for example, to the rebate. I have made a contribution on previous occasions on that issue. There are a range of other pieces of legislation with respect to superannuation choice in the industrial relations area and the public sector area, and I will make a contribution when that legislation comes before the Senate.

Firstly, let me give a brief overview of current superannuation arrangements in Australia. Superannuation has been compulsory for employees in Australia since the introduction of the superannuation guarantee charge by the then Keating Labor government. At the time, it was controversial, but it is now hailed as a universally necessary measure in order to boost both national savings and individual retirement incomes. It is currently six per cent of wages, rising to nine per cent by the year 2001-02.

These contributions are made by the employer, but they are moneys that belong to the employee and, in part, they are superannuation contributions in lieu of a wage increase. These funds are administered by the private sector, and they are administered and managed, in the main, by independent, non-profit trusts, either through a company or industry fund structure. In both these cases, there are joint employer and employee trustees. The trustees, who exercise management decisions, tender in a competitive way for the administration, investment and insurance products for the funds that they manage. Trustees, using their economy of scale, bargain very successfully on behalf of their individual members. They are cost efficient, reliable and safe, and enjoy a good long-term average return.

Another product in the superannuation market is personal superannuation. It is often sold by agents. We have also recently had the entry of banks into the superannuation market with retirement savings accounts, commonly known as RSAs. In respect of personal superannuation products they have often been criticised, I think justifiably, for their high administrative charges. In respect to RSAs, they are certainly delivered at a reasonable cost in terms of administration, but they are a low return product.

What does superannuation choice mean? If we look at the second reading speech of the Parliamentary Secretary to the Prime Minister, Mr Miles, it is interesting to note, initially, that the government's explanation for superannuation choice is only five paragraphs long. This is interesting because the measure we are considering is one of the most radical and far-reaching changes that will affect millions of Australians. It will have a very significant implication. I find it disturbing that there is only a five-paragraph contribution in the second reading speech on this issue.

What does superannuation choice mean in reality? In reality, it is the deregulation of the retail market for superannuation in this country where the employer agrees. The effective choice is largely left to the employer. That is a significant change to the government's original budget announcement. The Assistant Treasurer, Senator Kemp, made significant changes to effectively give the employer the right of veto over the choice made by employees. The Assistant Treasurer refers to the changes as `enhancements'. Effectively, it was a backdown in the face of employer pressure to ensure that the employer had the right of veto.

We are not considering legislation that gives the employee the right of choice. But, in reality, what does choice mean? Effectively, as I have said, it is the deregulation of the retail end of the market. Before I make some comments about the implications of that, I should emphasise that there is a form of choice in respect of the superannuation market at the present time. There is choice of investment within a significant number of superannuation funds that currently exist. In many of the funds that offer the product, a member can indicate the sort of investment area they want their moneys invested in. That is a feature that is emerging more and more in the range of superannuation funds that exist in this country.

It is also interesting that this government has identified choice as an issue since the advent of the superannuation guarantee and of industry superannuation funds. It is interesting to note that it never regarded choice as an issue when superannuation was confined to a minority of the work force in this country and confined, largely, to in-house employer funds.

I would like to make a few comments about the theory of competition. Assurances are given in Mr Miles's speech and by Senator Kemp and others. Mr Miles said:

The choice of fund arrangements are designed to give employees greater choice and control over their superannuation savings, which in turn give them greater sense of ownership of these savings. The arrangements will increase competition and efficiency in the superannuation industry, leading to improved returns on superannuation savings.

Let me emphasise that last sentence again:

The arrangements will increase competition and efficiency in the superannuation industry, leading to improved returns on superannuation savings.

That is the claim by the government. Let me deal with the theory of competition, because it is very important when considering the issue of choice. The theory of competition relies on a number of important criteria. The two relevant criteria here are, firstly, that superannuation should be delivered by a significant number of players. We should not have an oligopoly or a monopoly; there should be a considerable range of products from which to make a choice. That criterion certainly exists in the superannuation industry.

The second important criterion for competition is product knowledge and understanding. This will be very important in respect of the individual Australians, the individual consumers, who will be compulsorily required to make a choice as a consequence of this legislation.

I am very sceptical. In fact, I am sure that there is a very limited product knowledge held by the millions of Australian consumers who will be required to make this choice. Interestingly, at the hearings before the Senate Select Committee on Superannuation, there was considerable evidence about the lack of knowledge of Australian consumers in this area.

I note that Mr Ken Lockery, who is the principal of Towers Perrin, noted that the majority of employees in large employer based or industry funds would not receive any benefit and that they might, instead, suffer a net economic loss as a result of the introduction of choice, simply because their individual knowledge of making a choice about a superannuation product is very limited and, in many cases, non-existent.

If there is to be a choice, it is important that it is an informed choice. The Australian consumer should be able to sit down and make a valid comparison between various superannuation products and the costs and returns associated with the range of products on offer. In that regard, education is very important and it is critical to Australians making an informed choice. Education is a great deal more than a well- planned advertising and, I would argue, propaganda campaign by funds as to the different products they offer. Of course, there also needs to be a sufficient time period in which to conduct an education campaign.

Even with a properly presented education campaign directed at the Australian community, I am very sceptical about us being able to adequately inform Australians as to making an informed choice of superannuation product. Let us assume that we can educate millions of Australians to the level of financial literacy required to make an informed choice. What about the 2.5 million Australians who are either illiterate or functionally illiterate? What hope is there of educating those 2.5 million Australians adequately in order for them to make an informed choice.

Choice has been introduced in two countries, and disturbing evidence of the significant problems which have arisen has come from both those countries—the United Kingdom and Chile. Firstly, let me deal with the United Kingdom. In the 1980s, the Thatcher conservative government decided to allow employees to opt out of their company pension fund and set up a personal pension arrangement instead—indeed, they were forced to. (Time expired)

The ACTING DEPUTY PRESIDENT —Order! It being 12.45 p.m., the debate is interrupted.